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Luxco, Inc. v. Jim Beam Brands Co.

United States District Court, N.D. Illinois, Eastern Division

September 11, 2014

LUXCO, INC., Plaintiff,
v.
JIM BEAM BRANDS, CO., Defendant.

ORDER

AMY J. ST. EVE, District Judge.

The Court denies Defendant's Motion to Dismiss Plaintiff's First Amended Complaint [25]. Defendant must answer the First Amended Complaint on or before 10/2/14. Parties shall file a joint proposed discovery plan by 10/3/14. Status hearing set for 9/30/14 is stricken and reset to 10/7/14 at 8:30 a.m.

STATEMENT

On April 21, 2014, Plaintiff Luxco, Inc., ("Luxco") filed a two-count First Amended Complaint alleging two claims for breach of contract against Defendant Jim Beam Brands, Co. ("Jim Beam") based on the Court's diversity jurisdiction. See 28 U.S.C. § 1332. Plaintiff alleges that Jim Beam breached a January 28, 2013 Asset Purchase Agreement between the two parties. Before the Court is Defendant's Motion to Dismiss Plaintiff's First Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (R. 25.) For the following reasons, the Court denies Defendant's motion to dismiss.

BACKGROUND

The Court takes the following facts from the allegations in Luxco's First Amended Complaint, which the Court accepts as true for purposes of the motion to dismiss. Lavalais v. Village of Melrose Park, 734 F.3d 629, 632 (7th Cir. 2013).

Luxco is a corporation organized and existing under the laws of the State of Missouri, with its principal place of business at 1000 Clark Avenue, St. Louis, Missouri. (R. 24, First Am. Compl. ¶ 2.) Jim Beam is a corporation organized and existing under the laws of the State of Delaware with its principal place of business at 510 Lake Cook Road, Deerfield, Illinois. ( Id. ¶ 3.)

Beginning in early 2012, Luxco and Jim Beam began negotiating the sale by Jim Beam of certain intellectual property and other assets ("Acquired Assets") to Luxco. This sale was to include the exclusive right to sell certain brands of alcoholic beverages (the "Acquired Brands"). ( Id. ¶ 7.) On January 18, 2013, Luxco and Jim Beam entered into an Asset Purchase Agreement ("APA") for the sale of the Acquired Brands by Jim Beam to Luxco in exchange for valuable consideration. ( Id. ¶ 8.) As part of the sale, Luxco purchased certain representations and warranties set forth in Article III of the APA. ( Id. )

Specifically, Section 3.11 of the APA, defined as "Knowledge Parties, " represented that "[t]he persons listed in the definition of Knowledge of the Seller" under Section 9.1 "have received the representations and warranties of the Seller hereunder." ( Id. ¶ 10.) Section 9.1 defined "Knowledge of the Seller" as "actual knowledge after the performance of reasonable due inquiry of records and each named individual's direct reports and predecessors likely to have knowledge of relevant matters." ( Id. ) Jim Beam identified William Newlands (President, North America), Nicholas Fink (Chief Strategy Officer), John Lee (V.P., Strategy & Development), Kevin Cooke (V.P., Sales Strategy), Maria Martin (Director, Intellectual Property), and David Hunter (V.P., Global Manufacturing) as individuals with the obligation to act as those with knowledge of the seller. ( Id. ) These individuals were responsible for gathering true, complete, and accurate information known to Jim Beam, or available to it upon reasonable inquiry to others as set forth in Section 9.1, in response to Luxco's due diligence requests, including true, complete, and accurate information supporting the representations and warranties that Jim Beam provided in the APA. ( Id. )

In November 2012, Jim Beam prepared and provided to Luxco a Brand Detail Sheet that contained Jim Beam's data on shipments of cases, net sales, gross profits, brand investment and brand contribution for each of the Acquired Brands. ( Id. ¶ 11.) The parties calculated the purchase price based on the Brand Detail Sheet, and relied on it during communications and negotiations during the due diligence period. ( Id. ) Schedule 3.14 of the APA represents the final version of the Brand Detail Sheet. ( Id. ) On or about November 18, 2012, Donn Lux, President and CEO of Luxco, forwarded to Nicholas Fink and John Lee of Jim Beam a letter providing a term sheet that led to the APA and a list of due diligence items. ( Id. ¶12.) In the term sheet, the parties agreed to base the purchase price for the Acquired Brands on a multiple of the net profit derived from the number of cases sold of the Acquired Brands. ( Id. ¶ 13.)

Luxco's due diligence requests included, but are not limited to, the following: (1) retail account incentives/programs by brand, retailers, and distributor; (2) retail or on-premises coop programs by SKU[1] by customer (e.g., "buy one case Red Stag, get Wolfschmidt liters free"); (3) on and off-premises National Account/Chain authorizations by SKU, by chain, and by state; (4) on and off-premises National Account/Chain authorizations in jeopardy by SKU, by chain, and by state; and (5) on and off-premises National Account/Chain support agreements by SKU, by chain, and by state. ( Id. ¶ 14.) Luxco requested additional information from Jim Beam during the due diligence period, including requests regarding how the Acquired Brands were included in any "national-level Beam incentives." ( Id. ¶ 15.) From November 2012 until the parties executed the APA, Jim Beam provided periodic responses to Luxco's requests. ( Id. ¶16.) In some cases, the responses were incomplete; in other cases, Jim Beam refused to respond. ( Id. ) These incomplete or non-existent responses caused Luxco to demand certain representations and warranties in the APA. ( Id. )

On December 12, 2012, Jim Beam issued to Luxco a report that provided that "Beam has no national account programs" for the Acquired Brands, that Jim Beam would not provide Luxco with information relating to National Accounts or Chain authorizations in jeopardy, and that Jim Beam does not provide incentives or "BI [Brand Investment] dollars" for the Acquired Brands. ( Id. ¶ 18.) For each of these items, Jim Beam identified the status of Luxco's request as "closed." ( Id. )

In Section 3.14 of the APA, Jim Beam represented and warranted that the information contained in the Schedule 3.14 (the Brand Detail Sheet) was "true, complete and accurate in all material respects." ( Id. ¶ 20.) Luxco reasonably relied on this representation and warranty. ( Id. ¶ 21.)

On approximately January 25, 2012, just a few business days before the APA was scheduled to close, Donn Lux sent to William Newlands, Jim Beam's North American President, an email questioning whether Jim Beam had provided true, complete, and accurate information relating to its investments in the Acquired Brands. ( Id. ¶ 22.) In response, Jim Beam advised Luxco that the November 2012 Brand Detail Sheet accounted for all of the incentives it provided for the Acquired Brands. ( Id. ) Luxco, however, contends that the information in the Brand Detail Sheet was not true, complete, and accurate in all material respects. ( Id. ¶ 23.) Rather, Luxco alleges, Jim Beam failed to identify the total number of cases of products of the Acquired Brands that were contingent upon and directly tied to sales of other Jim Beam brands that the APA did not include. ( Id. ¶ 24.) Specifically, Jim Beam designed its incentive programs to generate increased sales of its premium brands, which the APA did not include, through give-away and discount programs involving the Acquired Brands. ( Id. ) Jim ...


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